What is a supply chain?
A supply chain includes every step that is involved in transforming raw materials into a finished product or service for the final consumer.
Steps in a supply chain process.
1)Planning the inventory and manufacturing processes to ensure that the supply and demand of goods and services are adequately met.
2)Sourcing or extraction of raw materials to manufacture the desired end product.
3)Refining the raw materials into basic parts.
4)Assembling the parts and testing out the end product.
5)Packaging the finished product for shipment
6)Transporting and delivering the finished product to a distributor, retailer or final consumer.
7)Providing customer service for products that might be returned.
Supply Chain Management
Supply chain management(SCM) is a system that handles the entire production process of goods and services in the organization. SCM is the total control of all activities needed for a company to convert raw materials into finished products that are then sold to the final consumer.
The goal of SCM is to improve efficiency by coordinating the efforts of various organizations in the supply chain.
Elements of Supply Chain Management
There are important factors that determine the efficiency of supply chain management;
1)Planning: Planning is the first and most essential element of SCM. Before the start of a supply chain, it is important to check the demand for the particular service or product, check the viability, cost, profit, etc. Without a proper plan in place, it will be difficult for the business to achieve effective and long-term benefits.
Good planning helps to identify the demand and supply trends in the business which helps to create a successful supply chain management system.
2)Sourcing: The second element of supply chain management is Sourcing. Products abs services sold to the final consumer are created with the help of different types of raw materials. It is therefore very important that these raw materials are of good quality and that they have been purchased at cost-effective rates.
It is crucial that a business purchases quality materials so it can create good quality products or services and maintain its reputation in the market.
There are various methods involved in sourcing and the main processes that are part of sourcing are; ordering the raw materials, receiving the materials, managing inventory, keeping good communication with suppliers and authorizing suppliers' payments.
3)Inventory: For an effective supply chain management system, it is important that an inventory be kept and thoroughly maintained. An inventory entails the ready list of items, raw materials and other essential products needed for the product or service of a business. This list has to be regularly updated to define available stock and required stock that needs to be supplied.
Inventory management is crucial to the function of SCM because, without proper inventory management, the production processes and sale of the product to the final consumer will be affected negatively.
4)Production: For the process of production to begin, it is essential that proper planning, sourcing, supply of goods and inventory are carried out properly.
Various activities involved in the production process are; accepting raw materials, creating the products or services, testing the quality of the products, discarding or recycling the materials that do not meet the standards, packing the final products, and scheduling the delivery to the final consumer.
5)Transportation: Transportation is an important process in delivering raw materials to the manufacturing unit and also for the delivery of the final product to the consumer.
At each stage, timely transportation is highly important to sustain a smooth business process and maintain a good reputation in the marketplace.
The delivery component of supply chain management is also known as logistics.
To achieve a secure delivery process, a business can make use of a good logistics service to ensure minimal damage or loss in transit. It also helps in a case where the delivery process requires special handling.
The delivery component of the supply chain management consists of activities like sorting customers' orders, scheduling deliveries, payment methods, dispatching deliveries, sending invoices to customers and receiving payments.
6)Return: A good supply chain management should accept the return of unwanted or faulty goods as well as goods that may have been delivered in excess quantity. Faulty goods should be taken back to recycle or scrap as the case may be. Excess goods returned can be transported to the warehouse for future sale.
A quick response to faulty goods shows that the supplier takes responsibility and it gives customers a reason to trust in the business, which gives room for long-term business dealings between both parties.
Objectives of Supply Chain Management
1)Efficiency: Supply chain management improves the efficiency of the supply chain at all stages. Efficiency can reduce wasted materials, wasted money, wasted labour, wasted delivery time, etc. Keeping waste to the barest minimum is an important objective of SCM.
2)Quality: Ensuring that a product or service is of the highest possible quality is another important objective of supply chain management. SCM has a direct effect on the quality of a company's product and its overall productivity.
3)Transportation Cost Optimization: Supply chain management ensures that your processes flow smoothly. It ensures that suppliers, manufacturers, wholesalers, etc are on the same page and this helps to minimise the cost of transportation.
4)Improving Distribution: SCM helps to facilitate the speedy movement of goods by proper coordination between various transportation channels and warehouses. This improves the distribution processes and makes the delivery of products easier and faster.
5)Enhancing Customer Satisfaction: Maximising customer satisfaction is an important objective of supply chain management. A supply chain is the most effective customer service because it has a direct impact on the most important components of customer satisfaction which are: pricing and delivery. SCM empowers you to provide your customers with what they want when they want it and at the lowest price possible and these are the most critical factors to maintaining their utmost satisfaction.
Working capital is a crucial financial metric that tells if a company can keep up its operations and cover its liabilities. Too little working capital indicates immediate liquidity problems, while too much working capital indicates inefficient usage of resources. Thus, it is necessary to calculate the working capital needs of a business to balance between efficiency and taking advantage of opportunities.
Working capital is a crucial financial instrument in supplychain management, from Trade credit to Invoice financing. Select the right business working capital option.